The development of commercial exchanges beyond national borders confronts companies with increased legal complexity. When a dispute arises with a foreign partner, turning to the state courts can be lengthy, costly and sometimes unpredictable, particularly because of conflicts of law or jurisdiction. It is in this context that international arbitration has emerged as a preferred alternative, offering private justice that is often faster and more confidential, and whose decisions are widely recognised throughout the world. But what exactly is international arbitration? How is it different from domestic arbitration and, above all, how do you go about it? This article explores the basic concepts of international arbitration and looks at the cornerstone of this mechanism: the arbitration agreement. We will see how its validity is assessed and why its autonomy from the main contract is such a decisive principle.
What is international arbitration?
Arbitration is a method of settling disputes in which the parties decide to submit their dispute not to a state court, but to one or more private individuals - the arbitrators - whom they choose directly or indirectly. The decision handed down by these arbitrators, known as an arbitration award, has in principle the same force as a court judgement and can be enforced.
French law makes a fundamental distinction, governed by the Code of Civil Procedure, between domestic arbitration and international arbitration. Domestic arbitration, dealt with in Title I of Book IV of the Code (resulting in particular from Decree no. 2011-48 of 13 January 2011), concerns purely domestic disputes. International arbitration, governed by Title II of the same book, covers disputes involving more than one legal system. This distinction is not purely academic; it has important legal consequences, particularly as regards the validity of the arbitration agreement and the remedies available against the award.
There is no single global law governing international arbitration. Its practice is based on a combination of specific national laws (such as French law), international conventions and the rules of private institutions. Among the most important conventions are the 1958 New York Convention, which facilitates the recognition and enforcement of foreign arbitral awards in over 160 countries, and the 1965 Washington Convention, which created the International Centre for Settlement of Investment Disputes (ICSID) for disputes between states and foreign investors. Our discussion here will focus mainly on international commercial arbitration, leaving aside for the moment the specific features of investment or sports arbitration.
When is an arbitration considered international?
The classification of an arbitration as "international" is essential because it determines the applicable legal regime. But how do you actually know whether an arbitration falls into this category? French law adopts a pragmatic and economic approach.
Under article 1504 of the Code of Civil Procedure, "Arbitration is international when it involves the interests of international trade".. This definition, the result of a long evolution in case law, sets aside purely legal criteria and focuses on the economic reality of the transaction at the origin of the dispute. It is necessary, and sufficient, that the disputed transaction involves a movement of goods, services or capital across borders.
In practical terms, an arbitration will typically be international if the contract concerns :
- Parties established in different States.
- The performance of services (delivery of goods, provision of services) in a country other than that in which the parties are established.
- Significant cross-border financial flows linked to the operation.
- A complex set of contracts, some of which are executed abroad.
Conversely, the mere foreign nationality of a party, the simple fact of applying a foreign law to the contract, or the choice of a foreign place of arbitration are not in themselves sufficient to render the arbitration international if the underlying economic transaction takes place entirely in France. It is the nature of the economic transaction that takes precedence. For example, a dispute over the sale of shares in a French company between two French companies remains internal, even if one of the parent companies is foreign, if the transaction itself does not involve direct cross-border flows linked to the sale. On the other hand, if the payment of the transfer price passes through a foreign country, the economic criterion is met.
The arbitration agreement: the fundamental agreement
Recourse to arbitration depends entirely on the will of the parties. This will is expressed in the arbitration agreement, which is the document by which the parties agree to submit their dispute to an arbitral tribunal. The Code of Civil Procedure traditionally distinguishes between two forms (article 1442):
- La arbitration clause inserted in a main contract, it provides that disputes future arising from this contract will be submitted to arbitration.
- Le compromise : concluded after When a specific dispute arises, it formalises the agreement of the parties to submit that specific dispute to arbitration.
In international matters, however, this distinction is tending to become blurred. Case law and practice often prefer the generic term "arbitration agreement", recognising that it can cover both future and existing disputes, and that its legal regime is largely unified.
An essential point is the validity in principle of the arbitration agreement in the international order. Contrary to French domestic law, which for a long time surrounded the arbitration clause with restrictions (in particular the former prohibition in civil contracts or for non-traders), case law very early on stated that these prohibitions did not apply to international disputes involving the interests of international trade.
In terms of form, international arbitration is highly flexible. Article 1507 of the Code of Civil Procedure provides that "the arbitration agreement is not subject to any formal requirements".. This means that a verbal or even tacit agreement could suffice to establish the parties' commitment. In practice, however, a written document is essential, if only for evidentiary purposes. Article 1515 requires the arbitration agreement to be produced in order to enforce the award. In addition, the 1958 New York Convention, which is essential for enforcement abroad, requires an "agreement in writing" (signed or contained in an exchange of letters or telegrams).
It is also common for the arbitration agreement to be stipulated "by reference". This is the case when a contract refers to general terms and conditions or to another document that itself contains an arbitration clause. For this clause by reference to be enforceable, the party against whom it is invoked must have been aware of the existence and content of the clause at the time the contract was entered into and must have accepted it, even implicitly, by his silence or his commercial conduct. The practices of the sector concerned may play a role in assessing this knowledge and acceptance.
The essential principle: the autonomy of the arbitration agreement
One of the most fundamental principles of international arbitration is the autonomy (or separability) of the arbitration agreement. This principle has been enshrined in case law (notably the seminal Gosset 1963) and reiterated in Article 1447 of the Code of Civil Procedure (applicable via Article 1506), this principle means that the arbitration agreement is legally independent of the main contract in which it is inserted or to which it relates.
Think of the arbitration agreement as a kind of contract within a contract, but with its own legal life. What are the practical consequences? They are considerable:
- Resistance to the invalidity of the main contract : If the main contract is declared void, non-existent, terminated or resolved, this shall not, in principle, affect the validity of the arbitration agreement. The arbitrator appointed shall remain competent to rule on the consequences of such nullity or termination. Conversely, the possible nullity of the arbitration clause does not automatically entail the nullity of the rest of the contract.
- Escaping delaying tactics : This principle prevents a party acting in bad faith from paralysing the arbitration simply by invoking the nullity of the main contract to challenge the arbitrator's jurisdiction. The arbitrator will always be able to examine his own jurisdiction under the clause, regardless of the alleged defects in the main contract.
- Autonomy from the law of the main contract : The law applicable to the arbitration agreement (to determine its validity, interpretation and scope) is not necessarily the same as the law chosen by the parties to govern the main contract.
- Autonomy from state laws : French case law goes further, holding that the validity of an international arbitration agreement is assessed primarily on the basis of the common will of the parties, without it being necessary to refer to a specific national law (case law Dalico). This "substantive rules" approach means that the agreement is valid if the parties intended to have recourse to arbitration, subject only to compliance with international public policy (in particular the arbitrability of the dispute) and the mandatory rules of French law (such as the requirement of loyalty).
This principle of autonomy is fundamental to guaranteeing the effectiveness of international arbitration.
Capacity of the parties and consent
For an arbitration agreement to be valid, the parties must have the legal capacity to bind themselves. In international law, the capacity of a natural person or legal entity is generally determined by its personal law (national law for an individual, law of the registered office for a company). However, in international arbitration, French case law tends to apply substantive rules here too, particularly with regard to the power of a representative to bind a company in an arbitration agreement. It often applies the theory of appearance or apparent authority: if the contracting party could legitimately believe that the signatory had the power to bind the company, the arbitration agreement will be valid, as the conclusion of such a clause is often seen as a routine act of management in international trade.
The question of defects in consent (error, fraud, violence) may also arise, but they must specifically affect consent to the contract. arbitration agreement itself, and not just to the main contract, by virtue of the principle of autonomy. Such cases are relatively rare in practice.
Particular attention must be paid to contracts concluded with consumers or non-professionals. Even in an international context, protective rules may limit the validity or enforceability of an arbitration clause. For example, article L. 212-1 of the French Consumer Code makes it possible to declare unfair (and therefore null and void) a clause that would oblige a consumer to refer exclusively to an arbitration tribunal not covered by legal provisions. The relationship between these protections and the liberal regime of international arbitration remains a delicate issue that must be examined on a case-by-case basis.
The arbitration agreement is much more than a simple procedural clause. It is the basis of the arbitrators' jurisdiction and has major legal consequences for the parties. Its validity and interpretation are governed by specific rules in international matters, dominated by the principle of autonomy.
The drafting and interpretation of an arbitration agreement are crucial to the future of your international commercial relations. To secure your contracts and understand your options in the event of a dispute, contact our firm.
Sources
- Code of Civil Procedure (in particular articles 1442, 1447, 1448, 1450, 1451, 1455, 1456, 1457, 1465, 1466, 1467, 1470, 1472, 1473, 1479, 1481, 1482, 1484, 1485, 1504, 1506, 1507, 1509, 1510, 1511, 1512, 1513, 1515, 1520, 2060)
- Consumer Code (in particular articles L. 212-1, R. 132-2)
- New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)
- Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965)
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